When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Tech Alert - DocuSign, Inc. (DOCU) – BUY
BUY DocuSign, Inc. (DOCU) February 2021 $260-$265 in-the-money vertical Bear Put spread at $4.40
Opening Trade
2-1-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 22 contracts
This is a short-term trade that software company DocuSign, Inc. (DOCU) will stay BELOW the strike price of $260 in the next 18 days.
Although a tech darling of 2020, DocuSign, Inc. (DOCU) has run out of steam and it’s a red flag when the broader market is pushing 3% and DocuSign, Inc. (DOCU) is down around 1% boding ill for short-term price action.
We have had some major volatile days recently, and the DOCU will get hit hard on the next bout of it as it has failed to push through the $260 mark.
This is a great long term bet but it will need to consolidate before going higher.
Equity valuations, in general, are extremely elevated on an absolute basis and even though low interest rates (and therefore unattractive returns from savings accounts and bonds) are one reason why stocks are trading so high, will tech growth stocks push that much higher in the short term?
Unprofitable tech stocks with historically extreme valuation above 20 times sales usually sell-off the deepest and the chances that DOCU will peter out in the next 18 days is favorable.
The coronavirus has caused many companies to accelerate their plans to adopt new digital technology. One beneficiary of this acceleration has been DocuSign and its e-signature platform.
Over the last three quarters, the company has added 38,000 enterprise and commercial customers, increasing its base of large customers by a whopping 50%. What's exciting for investors is that these new customers are just beginning their digital transformation journey with DocuSign.
The chances that Docusign will return over 200% this year is low and this is a good way to play that theme.
DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
If you don’t do options, stand aside.
Here are the specific trades you need to execute this position:
Buy to Open 22 February 2021 (DOCU) $265 puts at………….………$35.70
Sell to Open 22 February 2021 (DOCU) $260 puts at….........……….$31.30
Net Cost:…………………....................................…..…….………..…….....$4.40
Potential Profit: $5 - $4.40 = $.60
(22 X 100 X $.60) = $1,320 or 13.63% in 18 days
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
